Motions to Dismiss Claims Prior to Award (Dispositive Motions)

FINRA is aware that parties file motions to decide claims before a hearing (commonly referred to as dispositive motions) in arbitration cases. Even though nearly 90% of these motions are denied, FINRA is concerned that parties are spending additional resources to defend against these motions, thus increasing the costs and processing times of the arbitration process.

Effective on February 23, 2009, the Securities and Exchange Commission (SEC) approved a proposal to adopt Rule 12504 of the Code of Arbitration Procedure for Customer Disputes and Rule 13504 of the Code of Arbitration Procedure for Industry Disputes (collectively, the Codes) to establish procedures that govern motions to dismiss. The proposal also amended Rules 12206 and 13206 to address motions to dismiss based on eligibility grounds.

The rules establish procedures that specifically address motions to dismiss. These procedures implement a number of changes from current motions practice, which are listed below:

  • Parties must file the motions in writing, separately from the answer, and only after they file the answer.
  • Parties must file any Rule 12504(a) motion at least 60 days in advance of a hearing.
  • Parties will have 45 days to respond to a Rule 12504(a) motion.
  • In the case of an eligibility motion, parties must file any motion to dismiss at least 90 days before a hearing, and the other parties will have 30 days to respond.
  • The full panel will decide a Rule 12504(a) motion and an eligibility motion.
  • The panel cannot act upon a motion to dismiss a party or claim under Rule 12504(a), unless the panel determines that: (1) the non-moving party signed a settlement and release, or (2) the moving party was not associated with the account, security or conduct at issue.
  • The panel cannot act upon a motion to dismiss a party or claim under Rule 12206(b), unless the panel determines that the claim is not eligible for arbitration because it does not meet the six-year eligibility requirement.
  • If a party files a motion to dismiss on multiple grounds, including eligibility, the panel must decide eligibility first. If the panel grants the motion on eligibility, it must not rule on any other grounds for the motion.
  • The panel must hold a hearing before it grants a Rule 12504(a) motion, unless the parties waive the hearing.
  • If the panel grants a Rule 12504(a) motion, the decision must be unanimous and be accompanied by a written explanation.
  • If the panel denies a Rule 12504(a) motion, a party may not re-file it, unless specifically permitted by panel order.
  • If the panel denies a Rule 12504(a) motion, the panel must assess forum fees against the party who filed the motion.
  • If the panel deems a Rule 12504(a) motion frivolous, it must also award reasonable costs and attorneys' fees to the party who opposed the motion.
  • If the panel determines that a party filed a motion to dismiss under Rules 12206(b) and 12504(a) in bad faith, it may issue other sanctions under Rules 12212 and 13212 of the Codes.

Under the amended rule, when a respondent files a dispositive motion after the conclusion of the claimant's case, the provisions above would not apply. However, the rule does not preclude the arbitrators from issuing an explanation or awarding costs or fees.

FINRA recognizes that, in some limited circumstances, dispositive motions may be warranted. FINRA is concerned, however, that dispositive motions often result in delay of the hearing on the merits. FINRA reminds parties that filing dispositive motions in bad faith may result in sanctions imposed by the panel. Under Rules 12212 and 13212 of the Codes, the panel may sanction a party for failure to comply with any provision of the Codes, or any order of the panel or single arbitrator authorized to act on behalf of the panel. Sanctions may include, but are not limited to:

  • Assessing monetary penalties payable to one or more parties;
  • Precluding a party from presenting evidence;
  • Making an adverse inference against a party;
  • Assessing postponement and/or forum fees; and
  • Assessing attorneys' fees, costs and expenses.

FINRA also reminds parties and other users of the forum that Rules 12212 and 13212 of the Codes permit a panel to initiate a disciplinary referral at the conclusion of an arbitration. For example, depending on the facts and circumstances involving the filing of a dispositive motion, a member could be in violation of Rule 2110, which states that "a member, in conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade."

Finally, FINRA reminds parties and members that a panel may dismiss a claim, defense or arbitration with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective.